Cost Sharing Reduction Subsidies: What Are They and How Are They at Risk?

Throughout the early days of the Trump presidency, intense focus has been centered on the impact of the administration decisions relating to the payment of cost sharing reduction (CSR) subsidies. The Bipartisan Policy Center’s Future of Health Care leaders, together with other experts from across the health sector, have examined the stability of the individual market, and have noted that uncertainty regarding these administration decisions surrounding CSR subsidies weighed heavily on health insurer decisions on premium pricing and continued participation in the individual health insurance market, or the “non-group market.” This week, one of the nation’s largest individual market insurers, Anthem Inc., announced that this lack of certainty on CSR subsidy payments was a significant contributing factor in the company’s decision to drop individual market insurance offerings in Ohio in 2018. This decision could leave more than 10,000 Ohio consumers with no individual market coverage options in local areas in 2018, and casts significant doubt on the willingness of many insurers to continue to participate in Health Insurance Marketplaces in other states, without more assurances on the continuation of CSR subsidy payments. 

This BPC Deep Dive examines what CSR subsidies are and how these subsidy payments are affected by current legal and political uncertainty.

How Are CSRs Designed to Work?

First, it is important to understand the function of CSRs and mechanics of how CSR assistance is financed. CSRs provide financial assistance with deductibles and out-of-pocket expenses for lower-income consumers who purchase health insurance coverage on Health Insurance Marketplaces. Specifically, the Affordable Care Act (ACA) requires that health insurers offering Marketplace coverage must provide CSRs that reduce deductibles and required out-of-pocket payments for consumers who: (A) have incomes below 250% of the federal poverty level (FPL), and (B) enroll in Silver-level health plans. In practice, health insurers provide these CSRs by automatically increasing the actuarial value of the Silver plan that the consumer selects—with actuarial value increases ranging from 3% to 24%, depending on the income of the enrollee.¹

In 2017, the implementation of CSRs is expected to reduce deductibles for applicable enrollees by between $705 and $3,354 per year, depending on the income of the enrollee. For 2017, 58% of Marketplace enrollees received financial assistance through CSRs.

To account for increased costs borne by health insurers in providing the financial assistance of CSRs, the ACA required that the U.S. Department of Treasury make CSR subsidy payments to the health insurers to offset those costs.

Why Are the Government’s CSR Subsidy Payments in Doubt?

Although the ACA provided the Treasury Department with the authority to make CSR subsidy payments, the question of whether Congress appropriated funding for CSR subsidy payments has been the topic of an ongoing legal challenge. In U.S. House of Representatives v. Burwell, the federal District Court in the District of Columbia held in May of 2016 that the U.S. Departments of Treasury and Health & Human Services could not make CSR subsidy payments to health insurers because the ACA had not provided explicit funding for CSR subsidies. However, the District Court stayed the injunction against CSR subsidy payments, which effectively allowed the Obama Administration to continue to rely on its interpretation of the ACA and continue to make CSR subsidy payments while the administration appealed the ruling to the U.S. Court of Appeals for the District of Columbia Circuit.

In the seven months since President Trump’s election, the federal government and the U.S. House of Representatives have repeatedly sought delays in the proceedings of the Court of Appeals, while the Congress considers repeal of the ACA and other changes to laws governing the non-group health insurance market. Most recently, the Trump Administration and the House of Representatives jointly sought a continued delay in the proceedings on the CSR subsidy litigation, through August 20, 2017.

Further complicating the matter, under the present circumstances, the Trump Administration has the authority to come to its own interpretation of whether or not the ACA provides funding for CSR subsidies and whether the government should continue to make those CSR subsidy payments. At various points during the litigation, President Trump has made assertions that the administration may decide to cease CSR subsidy payments, and/or drop the administration’s appeal of the District Court ruling, unless congressional Democrats “start negotiating” on legislation to repeal and replace the ACA.

In recent court filings, 15 states petitioned the Court of Appeals with a motion to intervene in the litigation, allowing the states to, in effect, be added as defendants in the litigation in support of the legality of CSR subsidies. If the Court of Appeals grants the motion to intervene, a Trump Administration motion to drop the appeal would not result in an end to the case, although it is unclear whether the Trump Administration would still be allowed to unilaterally end CSR subsidy payments while the case continued with the states as the defendants in the litigation.

At any rate, while it is expected that CSR subsidy payments will continue through at least August of 2017, it remains uncertain whether CSR subsidy payments will be made in 2018 and beyond.

In our second blog on this topic, we examine the impact of failing to make CSR subsidy payments, as well as the road ahead for the CSR debate this summer.

¹Source: Affordable Care Act § 1402. For enrollees with income between 200 and 250% of FPL, plans must increase the plan’s actuarial value by 3%.  Plans must apply a 17% actuarial value increase for consumers with income between 150 and 200% of FPL, while applying a 24% increase for enrollees with income below 150% of FPL.